HOUSTON (Reuters) - A prison psychologist who evaluated accused swindler Allen Stanford testified on Tuesday that it would be "incredibly rare" for a patient to suffer from the type of delayed memory loss the Texas financier says makes him incompetent to stand trial.

The psychologist testified for the government at a competency hearing in U.S. District Court in Houston that will decide if Stanford's criminal trial can go forward next month.

The 61-year-old Stanford, who has been in custody since his June 2009 arrest, arrived at the hearing in handcuffs and leg shackles. Clad in a drab green jumpsuit, he sat quietly at the defence table during the proceedings.

Lawyers for Stanford, who is accused of running a $7 billion Ponzi scheme, have argued he is incompetent due to an addiction to anti-anxiety medication and a brain injury suffered in a 2009 jailhouse fight with another inmate.

Stanford claims he suffers from retrograde amnesia, which prevents him from recalling key events from his life prior to the 2009 fight.

Prosecutors say Stanford has faked his memory problems and that there is no evidence to support his claims. They say prison officials have concluded he is competent and they want that his trial to go forward as scheduled on January 23.

The amnesia that Stanford has described "is incredibly rare. There is hardly any documented medical research," Dr. Robert Cochrane, the staff psychologist at a federal prison hospital in North Carolina who evaluated Stanford, testified on Tuesday.

On cross examination, Stanford's lawyers argued that the jailhouse beating caused lasting brain injury and that drugs administered after the injury have impaired his memory.

They also questioned Cochrane about the October timing of tests done to determine Stanford's competency and whether he was still suffering from residual effects of medication, ongoing insomnia and concern about other health conditions, including a heart ailment and a liver condition diagnosed in early September.

"No doubt he was worried about his health, but that would not account for his testing," responded Cochrane, who said he saw Stanford nearly every day at the Butner facility and had 60-to 90-minute sessions with him at least once a week.

He said Stanford's medical conditions may hamper his abilities, but "I see no brain injury that stands in the way of his standing trial."

Defence witness Dr. Richard Lawrence Pollock, a neuropsychologist, testified that Stanford's diminished cognitive skills from a brain injury, rather than his memory problem, could interfere with his ability to help his lawyers.

"Mr. Stanford would have a very difficult time assisting an attorney at trial," Pollock said. "The main reason is he is not able to maintain focus or attention."

"He does not have cognitive snap, sharp thinking or clear speech," Pollock said. "He can't function on those levels right now."

PONZI ALLEGATIONS

Stanford, who once owned luxury homes in the Caribbean, Houston and Miami, has been indicted on charges of fraud, conspiracy and money laundering. He has pleaded not guilty.

He is accused of running a Ponzi scheme through the Stanford Financial Group involving the sale of fraudulent certificates of deposit issued by his offshore bank in Antigua. A Ponzi scheme is a fraud in which existing investors are paid through deposits from newer ones.

The alleged scheme, prosecutors say, bilked investors throughout the United States and Latin America. Stanford also faces a civil lawsuit filed by the U.S. Securities and Exchange Commission in February 2009.

U.S. District Judge David Hittner, who is overseeing the criminal case, had ordered Stanford's mental health treatment last January after he determined that Stanford at that time was not able to assist in his defence.

In November, Stanford completed more than eight months of treatment at the Butner prison hospital to slowly wean him off of the addictive medication and undergo psychological testing. Bernard Madoff, whose Ponzi fraud was revealed several months before the SEC sued Stanford, is an inmate at the Butner complex serving a 150-year term.

Stanford's attorneys had been planning to call his former attorney Dick DeGuerin and the financier's 81-year-old mother, Sammie, as witnesses at the competency hearing, but the judge said on Tuesday he would only hear testimony from medical professionals.

The case is U.S. v. Stanford, U.S. District Court, Southern District of Texas. No. 09-00342.